"It is difficult to speak about reforms when 30 percent of
GDP has been left in the territories [of the self-proclaimed
republics - Ed.]. It is difficult to speak about reforms when
society is engulfed by military operations in the east,"
Avakov said at the Stress Test expert forum Tuesday, TASS
reported.

Ukraine’s eastern industrial base is a large chunk of the
country’s GDP, about 16 percent according to Investment Capital
Ukraine. Lugansk and Donetsk regions account for 25 percent of
industrial goods and services. Many of these industries, such as
coal mining and energy, have been shut down due to the conflict.

The loss of key industries in the country’s eastern province is
worrying for Ukraine, a country already on the brink of financial
disaster as the war drags into a second year.

Between lost industry and war expenses, the conflict between pro-
and anti-government forces has already wiped out 25 percent of
Ukraine’s economy in the first 3 months of 2015. Finance Minister
Natalia Yaresko has said 30 percent of next year's budget would
be spent on defense and debt obligations.

Ukraine’s economy shrank 6.8 percent in 2014 and is expected to
contract another 5.5 percent, according to the IMF’s latest
forecast. At the end of 2014, the country’s GDP was 1.5667
trillion hryvnia, or about $121 billion. The Standard &
Poor’s ratings agency forecast Ukraine’s GDP will shrink to $99
billion in 2015, and in a worst case scenario put forward by the
Economist to $70 billion.

When calculating the country’s GDP in 2014, Ukrainian officials
excluded Crimea, that reunited Russia in 2014, or the Donbass
conflict area.

During the coming year, Ukraine will receive an additional $10
billion from the International Monetary fund, part of a $17.5
billion recovery plan, and bringing total aid to around $40
billion. The first tranches of money will be used to prop up the
country’s beleaguered currency and foreign reserves. The
Ukrainian hryvnia has lost 60 percent of its value in the last year
and has dropped to 23.44 to the dollar, far weaker than the 21.75
per dollar limit envisioned by the IMF.

Foreign currency reserves stood at $5.6 billion at the end of
March, compared to the $36 billion level in 2011. The lack of
foreign currency reserves, among other factors, guided Moody’s
ratings agency to slash Ukraine’s sovereign debt rating to one
level above junk status.

Ukraine is asking foreign bondholders - from the Russian
government to American hedge funds- to agree to a $15.3 billion
debt restructuring plan, which in short, would mean debt
forgiveness.